Reliance Industries will lose if gas is sold to RNRL at $2.34: Salve

If Reliance Industries Ltd (RIL) sells gas at $2.34 per mbtu (million British thermal unit) to Reliance Natural Resources Ltd (RNRL), the Government makes a loss in profit petroleum and takes income tax from RIL, argued senior counsel Harish Salve in the Supreme Court on Friday.

Making his submissions before a three-judge Bench of Chief Justice K. G. Balakrishnan, Justice B. Sudershan Reddy and Justice P. Sathasivam, Mr. Salve, RIL’s counsel, said “If the selling price is $4.20 the Government stands to make $15.2 billion in revenue, including royalties and income tax.

The power plants still pay a higher price because the cost of fuel is to pass through and by their [RNRL] own admission they have said they intend to buy at $2.34 and sell it to the power plants at $4.20.” Mr. Salve pointed out that according to RNRL “it will take delivery at $2.34 and then re sell it at $4.20 and make the profit.

Further RNRL has no evidence to prove that the GSMA (gas supply master agreement) was not a bankable agreement. Our affidavit proves that Dadri [plant] under any circumstances cannot be implemented or completed before 2016. REL raised ECBs of $510 million or Rs. 2,000 crore for this purpose specifically.”

Mr. Salve then went on to explain the process of cost recovery and the differences between profit petroleum and cost petroleum and how the profits were taxed by the Government, which “adds to their income at a higher fuel price.”

On RNRL’s objection for impleading the Centre, Mr. Salve said that the Government had been impleaded in the RIL’s appeal as the Government had no objections and the direction from the court for price and supply had to take into account the role of the Government. He said “If the Court decides that the Gas Utilisation Policy (GUP) does not bind the contractor, then RIL also has marketing freedom to sell gas at market prices. If the court decides that the GUP is binding, then the court has to provide direction on how the contractor is being directed to supply at the Government-regulated price to avoid risk of damages from RNRL. Hence the Government participation as a party to this case unlike an intervener is critical to this case.”

When Mr. Salve said that RIL would prove that the seven affidavits filed by the independent directors were in response to changes made by RNRL in its SLP, senior counsel for RNRL, Ram Jethmalani, intervened and said “RIL is using false statements. I will prove that the board of directors knew of the MoU and were aware of the changes to be made.”

He said that if RIL was objecting to the word “approve”, he would change that word and rely on the submissions made in the Bombay High Court as all the evidence presented here has to be from a lower court and RIL could not file anything new. Mr. Salve then said the Bench was free to ignore the affidavits and concluded his marathon arguments. Senior counsel Rohinton Nariman, appearing for RIL started arguments on the Companies Act and explained how the provisions were important to understand the Scheme of Demerger. He will continue his arguments on November 17.